Special Studies Insurance products provided by insurance companies to the disadvantaged groups in India

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1 Special Studies Insurance products provided by insurance companies to the disadvantaged groups in India Working Paper

2 Copyright International Labour Organization 2005 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to the Publications Bureau (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland. The International Labour Office welcomes such applications. Libraries, institutions and other users registered in the United Kingdom with the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP [Fax: (+44) (0) ; in the United States with the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA [Fax: (+1) (978) ; or in other countries with associated Reproduction Rights Organizations, may make photocopies in accordance with the licences issued to them for this purpose. Insurance products provided by insurance companies to the disadvantaged groups in India Geneva, International Labour Office, Strategies and Tools against social Exclusion and Poverty (STEP) Programme, 2005 SERIES: Special Studies ISBN ISBN (web version) The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. ILO publications can be obtained through major booksellers or ILO local offices in many countries, or direct from ILO Publications, International Labour Office, CH-1211 Geneva 22, Switzerland. Catalogues or lists of new publications are available free of charge from the above address, or by Visit our website: Visit also the website Global Campaign on Social Security and Coverage for all: Printed by the International Labour Office, Geneva, Switzerland

3 Special Studies Insurance products provided by insurance companies to the disadvantaged groups in India Working Paper Global Campaign on Social Security and Coverage for All International Labour Office Geneva

4 Strategies and Tools against social Exclusion and Poverty (STEP) The Strategies and Tools against social Exclusion and Poverty global programme (STEP) of the International Labour Organization (ILO) is active in two interdependent thematic areas: the extension of social protection to the excluded and integrated approaches to social inclusion. STEP supports the design and dissemination of innovative systems intended to extend social protection to excluded populations, particularly in the informal economy. It focuses in particular on systems based on the participation and organization of the excluded. STEP also contributes to strengthening links between these systems and other social protection mechanisms. In this way, STEP supports the establishment of coherent national social protection systems, based on the values of efficiency, equity and solidarity. STEP s action in the field of social protection is placed in the broader framework of combating poverty and social exclusion. It gives special emphasis to improving understanding of the phenomena of social exclusion and to consolidating integrated approaches at the methodological level which endeavour to reduce this problem. STEP pays special attention to the relationship between the local and national levels, while at the same contributing to international activities and agenda. STEP combines different types of activities: studies and research; the development of methodological tools and reference documents, training, the execution of field projects, technical assistance for the definition and implementation of policies and the development of networking between the various actors. The programme s activities are carried out within the Social Security Policy and Development Branch of the ILO, and particularly its Global Campaign on Social Security and Coverage for All. STEP Programme Social Security Policy and Development Branch International Labour Office 4, route des Morillons CH-1211 Geneva 22, Switzerland Tel: (+41 22) Fax: (+41 22)

5 PREFACE The present study was conducted under the aegis of the ILO s STEP programme, as a very first attempt to identify and document the various insurance products provided by insurance companies (both public and private) to the disadvantaged groups in India. Tough every effort has been made to reach out all insurance companies and to gather all relevant information pertaining to these products, it cannot be claimed that every product has been fully documented. Also, time specifications did not allow travelling to the various locations across the country where the companies have their headquarters. Thus, the work had to rely on the responses provided to the questionnaire that was especially designed for the purpose of this study that had been sent out to all insurance companies. Moreover, lack of data / documentation on products that entered very recently the market meant that, at times, one had to work with insufficient secondary data. Since this is a working document and is clearly to be considered as a continuing process, it is hoped that more products will be added up to the present list and that more information will be made available in the coming months. As it is, the present information tool could not have been completed without the active support of many insurance companies representatives to whom we owe a debt of gratitude. We greatly appreciate their valuable input while responding to the questionnaire as well as to our many additional clarification requests. A very special acknowledgement must be made of the role played by Mr. Vijay Athreye and Mr. Piyush Kumar from TATA AG Life Insurance Company, Mr. Mohammed Riaz from AVIVA Life Insurance Company and Mr. Sarat Prakash Yadav from HDFC Chubb General Insurance Company, for their commitment, expertise and time in preparing the glossary, while sharing with us at the same time their views related to the further developments of insurance activities aiming the disadvantaged groups. v

6 TABLE OF CONTENT PREFACE... v TABLE OF CONTENT...vi TABLE OF FIGURES...vii LIST OF TABLES...vii LIST OF ACRONYMS...viii FOREWORD...ix 1 INTRODUCTION THE NEED FOR AN INFORMATION TOOL METHODOLOGY ORGANISATION BACKGROUND EVOLUTION OF THE INSURANCE SECTOR THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA) OBLIGATIONS OF INSURERS TOWARDS RURAL AND SOCIAL SECTORS (IRDA REGULATIONS OCTOBER 2002) SUMMARY OF FINDINGS THE PRODUCTS THE COMPANIES THE CHANNELS COMPARATIVE DATA INSURANCE PRODUCTS PROVIDED BY INSURANCE COMPANIES RISKS COVERED BY INSURANCE PRODUCTS SUBSCRIPTION MODALITIES OF LIFE INSURANCE PRODUCTS BENEFITS PROVIDED BY LIFE INSURANCE PRODUCTS BENEFITS PROVIDED BY ACCIDENT INSURANCE PRODUCTS BENEFITS PROVIDED BY HEALTH INSURANCE PRODUCTS THE PRODUCTS PRODUCTS COVERING A SINGLE RISK PRODUCTS COVERING A RISK PACKAGE THE COMPANIES PUBLIC INSURANCE COMPANIES PRIVATE INSURANCE COMPANIES CHANNELS AGENTS CORPORATE AGENTS BROKERS THIRD PARTY ADMINISTRATORS GLOSSARY: TERMS COMMONLY USED IN THE INSURANCE SECTOR ANNEXES ILO / STEP Questionnaire REFERENCE DOCUMENTS CONTACT ADDRESSES USEFUL WEBSITES COVERAGE STATISTICS (SOURCE : IRDA) DISTRIBUTION CHANNELS STATISTICS vi

7 TABLE OF FIGURES 1. Obligations of insurers towards the rural and social sectors 2. Range of coverage of insurance products 3. Risks covered by insurance products 4. Life insurance products: type of contract 5. Life insurance products: duration of contract 6. Life insurance products: type of benefits 7. Accident insurance products: type of benefits 8. Health insurance products: type of contract 9. Health insurance contracts: type of benefits 10. Health insurance products: level of exclusion 11. Product distribution: public / private insurance companies 12. Product distribution: life / non-life insurance companies 13. Range of products provided by insurance companies 14. Rural sector coverage: public / private insurance companies 15. Rural sector coverage: life / non-life insurance companies 16. Social sector coverage: public / private insurance companies 17. Intervention or corporate agents: public / private insurance companies 18. Intervention of corporate agents: life / non-life insurance companies 19. Distribution channels: the agents 20. Distribution channels: the corporate agents 21. Distribution channels: the brokers 22. Distribution channels: the Third Party Administrators LIST OF TABLES 1. Rural sector: Coverage achieved by life insurers 2. Rural sector: Coverage achieved by non-life insurers 3. Social sector: Coverage achieved by insurance companies 4. Life insurers: Number of corporate agents 5. Life insurers: Number of individual agents 6. Non-life insurers: Number of corporate agents 7. Non-life insurers: Number of individual agents 8. List of Third Party Administrators vii

8 LIST OF ACRONYMS AIDS BPL CAO CEO FICCI GDP GIC HDFC IC ILO IMD IRDA LIC MFI MSE NIAC NBFC NIC NGO OIC SHG STEP TPA UIIC UK Acquired Immunodeficiency Syndrome Below Poverty Line Chief Administrative Officer Chief Executive Officer Federation of Indian Chambers of Commerce and Industry Gross Domestic Product General Insurance Corporation of India Housing Development Financial Corporation Insurance Company International Labour Office Indian Meteorologist Department Insurance Regulatory and Development Authority Life Insurance Corporation of India Micro Finance Institution Micro and Small Enterprises New India Assurance Company Non Banking Financial Company National Insurance Company Non Governmental Organisation Oriental Insurance Company Self Help Group Strategies and Tools against social Exclusion and Poverty Third Party Administrator United India Insurance Company United Kingdom viii

9 FOREWORD In 2001 during the International Labour Conference of the ILO, the representatives of governments, employers and workers organisations reached a new consensus on social security. One of the major components of this consensus was that the highest priority should be given to policies and initiatives which could bring social security to those who are not covered by existing systems. It was widely recognised at the same time, that in many developing countries, the social security schemes which have been set in place, have been designed to address the sole needs of the formal economy workers. Consequently, only a small percentage of the population could benefit from any form of social protection. ILO s recent estimates established that 50 % of the world population had no protection at all, and that for 80 % the protection remained inadequate. The importance of social protection deficits called for the more active involvement of all concerned actors in new strategies and mechanisms that could contribute to the rapid extension of social protection to all excluded groups. As an integral part of ILO s Social Protection sector, the ILO/STEP programme has been actively engaged since 1998, in the identification, promotion and support of various innovative interventions that could efficiently address the social protection needs of the poor and excluded groups. Since 2002, the programme has started to increase its activities in Asia through a regional coordination based in New Delhi supporting several technical advisers operating in various countries. In light of the particular situation, challenges and opportunities recognised in this country, the STEP programme recently intensified its interventions in India. Although the informal economy workers in India contribute to some 63 % of the GNP, fair redistribution mechanisms of the generated wealth are not yet in place. At the present day, it is considered that more than 90 % of the whole population still do not benefit from any kind of social protection. Being not protected against the various risks they face on a daily basis, the broaden segments of the population remain caught in a continuing cycle of vulnerability and poverty. At the same time, the most disadvantaged groups are facing increasing difficulties in accessing rarefied and low quality essential social services such as education and health. In the recent years however, it has been observed in India a growing perception of the necessity to extend social protection to all excluded groups and a wider commitment to actively contribute to this extension through various strategies including the promotion on new micro-insurance schemes. As a direct result, numerous actors of the civil society (community-based organisations, women s groups, trade informal economy trade unions, NGOs, micro-finance institutions ) have already designed and set up in-house micro-insurance schemes that were tailor-made to answer the priority needs and contributory capacity of their target groups. At the central government level, as well as at the state level, multiple initiatives have also been taken in order to extend social protection to the poor, such as the setting up of sector-based welfare funds or provident funds, the creation of a social security fund, the development of innovative public-private partnership initiatives, and the marketing through public insurance companies of new subsidised insurance products. However, the most important of these initiatives was represented by the recent ix

10 decision made by the Insurance Regulatory and Development Authority to enrol all insurance companies in the government s efforts to extend social protection services to the disadvantaged groups of the population. The simultaneous engagement in India, of both public and private insurance companies in the provision of a wide spectrum of micro- insurance products aiming to protect the disadvantaged groups is to be considered as a unique experience in the world, and as such, deserved to be thoroughly documented. Even at this early stage, the first lessons learned could be of great interest, not only for the multiple organisations willing to tie up at the local level with insurance companies in order to address the social protection needs of their target groups, but also for the decision makers of other countries and the worldwide development community. x

11 1 INTRODUCTION 1.1 THE NEED FOR AN INFORMATION TOOL Until 1999, the whole Indian insurance market was reserved to five major public companies. On the one hand, the Life Insurance Corporation of India (LIC) had established itself as a giant company at the national level, offering a wide diversity of life and related contingencies insurance products through its numerous branches. On the other hand, the four other public insurance companies dealing with non-life insurance regrouped into an apex organisation called the General Insurance Corporation (GIC), also offered a wide range of insurance products covering health, assets, livestock, housing among others. Under Government pressure, these public insurance companies started as soon as in the early 80s, to design and market several insurance products, some being supported by Government subsidies, aiming the poorest segments of the population. In 1999, the Insurance Regulatory and Development Authority (IRDA) passed on a bill opening the national market to private insurance companies. These companies had however to comply with particular regulations designed to extend their activities to the disadvantaged groups of the population. Specific targets were set up to cover their progressive interventions in both the rural and social sectors. In 2003, 20 private insurance companies were already found operational in the country, competing with the public insurance companies, while developing in their respective field of intervention, various new products designed to meet these requirements. In order to reach the disadvantaged groups, both public and private insurance companies adopted the same strategy aiming to develop collaborations with the various organisations involved in multiple development activities at the grassroots level such as: NGOs, cooperatives, micro-finance institutions, micro-entrepreneurs associations, informal economy trade unions However, a comprehensive and detailed information on all insurance products offered by insurance companies was nowhere to be found. All organisations willing to intervene in this new insurance field had to rely on a direct contact with an insurance company to obtain the relevant information, and, in doing so, were not always in the position to select the product best adapted to their target groups needs. The same was true for the information pertaining to the operational mechanisms attached to the promotion, marketing and management of the various insurance products. The brochures and leaflets that some insurance companies used to sell their products did not usually provide all the detailed information allowing the interested organisations, while tying up, to understand clearly their responsibilities, neither to play an efficient informative role towards the potential policyholders. Also, and because of their lack of basic understanding on insurance issues and practice, these organisations were not always able to negotiate particular conditions and modalities related to their new interventions in this sector. There was thus an urgent need to produce and disseminate among all development operators working with the disadvantaged groups a comprehensive information tool on all insurance products provided by 1

12 the insurance companies, allowing them to play a more efficient role in the promotion of new insurance services contributing to the extension of social protection to the excluded groups. The original information tool was designed to facilitate: The selection, among the various products made available by the insurance companies, the product best adapted to the specific target groups needs The understanding of mechanisms and procedures attached to the provision of this product to their target groups The negotiation with the concerned insurance company of the conditions and modalities related to their intervention in the marketing and management of this product The preparation of corresponding awareness raising and information activities to be developed among their target groups It should be mentioned that because of the difficult circumstances of gathering information, all the initial goals might have not been reached. 1.2 METHODOLOGY In order to produce the present information tool, the following methodology was used: Preparation of a questionnaire directed to all insurance companies in order to collect primary relevant information (see Annex 1) Gathering and review of all available information: promotional materials distributed by insurance companies, websites, IRDA regulations, previous analysis and studies conducted in the sub-sector (see Annex 2); Meetings with insurance companies representatives at headquarter level (Chennai, Mumbai, Bangalore, Gurgaon and New Delhi) in order to gather more detailed information on products, operational mechanisms and collaboration arrangements; Analysis of all data and information and preparation of a standard format for the presentation of the products and the company; Communication of this formatted presentation to all insurance companies allowing them to propose the various changes and/or additions deemed relevant to their current activities Designed from the outset to be solely based on the information that the insurance companies were willing to provide, the present document had its obvious shortcomings. On the one hand, and due to its clear informative purpose, the document does not provide an analysis of the relevance of the various available products, based on their comparative main features or on their marketing experience in particular settings. On the other hand and because of lack of availability of insurance representatives or for reasons related to the competition that has already started to be felt in this new insurance sublet, many questions pertaining to the operational mechanisms and development strategies adopted by the insurance companies, many questions have been left unanswered. 2

13 However, it was never the aim of the present document to be comprehensive in bringing together all evidence and details on the promotional efforts, marketing strategies and claims processing experiences related to each of the documented products. This first information tool, in a very new and fast growing sub-sector of the insurance industry, should only help any interested organisation to select the product considered the best adapted to the specific needs of a population group, and to engage into direct contact with the concerned insurance company in order to obtain all additional detailed information prior to its final adoption. 1.3 ORGANISATION Since the present document was firstly addressed to organisations and people widely unaware of the technicalities involved in insurance business, it tried to adopt a user-friendly presentation. In order to facilitate the understanding of all reported information, the document has been organised under the following parts. A first background information covers the recent evolution of the insurance industry in India, the mission and particular role to be played by the Insurance Authority and provides the information related to the regulations and mechanisms applying to the new interventions of insurance companies in the rural and social sector A graph identifies the different actors and their respective position in the global insurance industry Part 1 of the document presents a brief synthesis illustrated by charts of the main findings regarding the products available, the insurance companies involved and the distribution channels used to market the products Part 2 of the document reorganises all insurance products into risk-based comparative tables allowing for a clearer picture and better understanding of their main features as regards their subscription modalities and range of benefits Part 3 of the document, using a simple standardised format, presents the main features of each insurance product. For easier reference, these products have been classified into the two following categories: products covering a single risk, and products covering a risk package (two or more risks). Part 4 of the document, also using a common format, presents the main characteristics of each insurance company involved in the provision of these insurance products Part 5 of the document provides some explanation on the various distribution channels that can be currently used, as per IRDA regulations, to market these insurance products Part 6 of the document presents a glossary of terms most commonly used in the insurance industry Annexes present the questionnaire that was used to collect primary information on the products and companies, a list of useful reference material, the contact addresses of all insurance companies as well as additional statistics provided by IRDA covering the current levels of coverage achieved and distribution workforce mobilised to market the products 3

14 2 BACKGROUND 2.1 EVOLUTION OF THE INSURANCE SECTOR EMERGENCE OF THE INDUSTRY The Indian insurance industry emerged almost two hundred years ago. The first life insurance company started its operations as soon as 1818, while the first general insurance company was established in The industry demonstrated in both sectors a rapid growth. After independence by the year 1956, 154 Indian insurers and 16 non-indian insurers were already operating in the life sector. At about the same time, 170 insurance companies, both Indian and foreign, were operating in the non-life sector NATIONALISATION OF THE INDUSTRY The whole industry was taken over by the central government in two steps. In 1956, the life sector was nationalised and the Life Insurance Corporation of India (LIC) was established as the sole company to intervene in this sector. In 1972, after amalgamating all non-life companies, four public companies were formed under the General Insurance Corporation in India (GIC) that similarly received the monopoly of conducting business in this sector. While experiencing a regular growth both in coverage and volume, the public insurance companies did little to expand their activities into rural areas, where the majority of the population was to be found. Loan arrangements for which banks required insurance cover from the borrowers still accounted for most of the business that was conducted in rural areas. In 1993, in order to further develop the insurance industry, the government appointed a special committee to evaluate the sector, foresee its further developments and provide guidance for the necessary changes to be adopted. After a comprehensive review of all insurance mechanisms and activities, the Malhotra committee came up with the following main recommendations: Private insurance companies were to be allowed to enter the market The two sectors: life and non-life sectors were to be kept strictly separate, no insurance company being allowed to simultaneously carry out activities in both sectors In order to avoid an excessive concentration on the urban market, a proportion of the activities conducted by the new entrants in rural non-traditional areas was to be specified In order to improve the performance of insurance companies and enable them to act as independent entities, it was proposed to set up an independent regulatory body. 4

15 2.1.3 OPENING OF THE MARKET The issue of opening the insurance market to private players was hotly debated in India after the submission of the Malhotra report. The final acceptance of this recommendation went along with stiff regulations aiming to limit the fierce competition that could result from the intervention of new actors. Among these, the most significant was the minimum paid-up capital required from a new entrant which was established at Rs (some 22,2 million US $). The Insurance Regulatory and Development Authority was set up in 1996, in order to provide all necessary regulations and guidelines related to the opening of the insurance market to new private companies. With the passage of the IRDA Bill in Parliament in December 1999, the insurance market was opened to private companies and till date, IRDA could already register 20 new insurance companies. 2.2 THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY (IRDA) BACKGROUND A faster development and wider impact of the insurance industry were to be achieved through a process of insurance reforms resulting in the liberalization of the market and in the passage of the Insurance Regulatory and Development Authority (IRDA) Act, The reforms procedures recognized simultaneously the need for development of the sector in addition to the traditional concept of regulation and thus conferred on the Authority the obligation to develop the sector as well MISSION STATEMENT The IRDA main mission was stated as follows: To protect the interest of and secure fair treatment to policyholders; To bring about speedy and orderly growth of the insurance industry, for the benefit of the common man, and to provide long terms funds for accelerating growth of the economy; To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates; To ensure that insurance customers receive precise, clear and correct information about products and services and make them aware of their responsibilities and duties in this regard; To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievances redressal machinery; To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players; 5

16 To take action where such standards are inadequate or ineffectively enforced; To bring about optimum amount of self-regulation in day to day working of the industry consistent with the requirements of prudential regulation IRDA POWERS AND FUNCTIONS Subject to the provisions of IRDA Act (1999), IRDA will : regulate, promote and ensure orderly growth of the insurance business and re-insurance business, which will include the following main functions (excerpts) : Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration; Protection of the interest of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and others terms and conditions of contracts of insurance; Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents; Promoting and regulating professional organisations connected with the insurance and re-insurance business; Levying fees and other charges for carrying out the purposes of the Act; Calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business; Specifying the percentage of life insurance and general insurance business to be undertaken by the insurer in the rural or social sector THE INSURANCE BUSINESS Insurance business is divided into four classes: I) Life Insurance, ii) Fire Insurance, iii) Marine Insurance and iv) Miscellaneous Insurance: Life Insurers transact life insurance business. General Insurers transact the rest. No composites are permitted as per law THE INSURANCE PLAYERS The Indian insurance industry has today two types of players: The public insurers: Life insurers: Life Insurance Corporation of India (LIC) Non-life insurers: 6

17 General Insurance Corporation of India (GIC). With effect from December 2000, the four GIC subsidiary companies have been de-linked from the parent company and made as independent insurance companies. At the same time, a reinsurance responsibility has been vested on GIC. 1. The Oriental Insurance Company Limited 2. The New India Assurance Company Limited 3. National Insurance Company Limited 4. United India Insurance Company Limited With effect from December 2002, a new company was promoted by the General Insurance Corporation of India, its four subsidiaries and Nabard. The main objective of this new entity was to protect and secure financial support in the event of damage to crops and other risks in agriculture and to develop insurance products in the best interest of the farming community. 5. Agriculture Insurance Company of India The private insurers: Life insurers: 1. HDFC Standard Life Insurance Company Ltd 2. Max New York Life Insurance Company Ltd 3. ICICI Prudential Life Insurance Company Ltd 4. Om Kotak Mahindra Life Insurance Company Ltd 5. Birla Sun Life Insurance Company Ltd 6. TATA AIG Life Insurance Company Ltd 7. SBI Life Insurance Company ltd 8. ING Vysya Life Insurance Company Private Ltd 9. Allianz Bajaj Life Insurance Company Ltd 10. Metlife India Insurance Company Private Ltd 11. AMP Sanmar Assurance Company Ltd 12. Aviva Life Insurance Company India Private Ltd Non-life insurers: 1. Royal Sundaram Alliance Insurance Company Ltd 2. Reliance General Insurance Company Ltd 3. IFFCO Tokio General Insurance Company Ltd 4. TATA AIG General Insurance Company Ltd 5. Bajaj Allianz General Insurance Company Ltd 6. ICICI Lombard General Insurance Company Ltd 7. Cholamandalam General Insurance Company Ltd 8. HDFC-Chubb General Insurance Company Ltd GENERAL TRENDS IN INSURANCE SECTOR The current market size (protection and savings) of the Life Insurance market is approximately Rs. 350 billion. The estimated market size is expected to be around Rs. 800 to billion by

18 In general insurance the current market size is approximately Rs. 120 billion. The overall market size is estimated at Rs. 250 billion by DEVELOPMENT INITIATIVES The Authority has already taken the following initiatives in order to further develop the market and improve the density of insurance penetration: Encourage the presence of an adequate number of insurers to provide competition and choice to customers; Prescribe rural and social sector norms in order to achieve adequate social security and health protection; Ask the insurance companies to devise new covers and products addressed to specific sectors in the economically weak population; Recommend, at the time of grant of registration to the new companies, and in suitable cases, the establishments of branches and offices in places where activities are on a low key; Encourage awareness campaigns to improve insurance literacy levels by conducting workshops, distributing literature etc Enter into a Memorandum of Understanding (MOU) with the Indian Institute of Management, Bangalore, for carrying on research work in the case of insurance (Centre for Insurance Research and Education); Notify the Third Party Administrator (TPA) regulations, for providing efficient customer services as well as ensure greater penetration of health insurance in the country; Initiate, in light of September 11 events, and with the participation of the national re-insurer, the setting up of a terrorism pool to provide such a facility to the insurance consumers. Ask the insurance companies to retain the bulk of the premium within the country and exhaust local market capacity before reinsuring abroad. Introduce for the first time the institution of insurance broker which is expected to improve market penetration by enabling, designing and marketing of customised policies based on global best practices and experience. It will also enhance the efficiency in the conduct of insurance business with the scaling down of transaction costs NEW DEVELOPMENT PERSPECTIVES The pro-active role taken by the Authority in the establishment of a vibrant insurance market in the country should result in the main following development perspectives: Cooperative societies should be recognised and allowed to play an active role in the insurance business; A large, still untapped, market is foreseen for the following products: health insurance, credit insurance, crop and cattle insurance; 8

19 A larger activity should be witnessed in the reinsurance market, particularly for catastrophe, terrorism and war risk covers; New insurance companies are expected to apply for registration in the near future, further expanding the outreach of insurance products in the far nooks and corners of the country; Contrary to previous belief, rural insurance is profitable. The overall market is estimated today at Rs. 250 billion by Companies need to better promote insurance before selling their products. The right mix of distribution channels should aid in exploiting the market potential; The social mandates have in no way restricted the growth of industry or its financial strength The new players are convinced of the vast potential in the rural hinterland and have initiated steps to bring necessary networks to achieve their targets; Banks and other organisations are expected to further develop as corporate agencies of insurance companies and associate themselves in the selling of insurance policies under the banc assurance model; The Authority is also examining the prospects of expanding the re-insurance market by encouraging the setting up of one or more re-insurance companies in the private sector. 2.3 OBLIGATIONS OF INSURERS TOWARDS RURAL AND SOCIAL SECTORS (IRDA REGULATIONS OCTOBER 2002) BACKGROUND In exercise of the powers conferred by the Insurance Act, 1938, and in consultation with the Insurance Advisory Committee, IRDA adopted in 2002 the following regulations aiming to extend the insurance coverage to the rural and social sectors. It has to be noted: That these regulations only apply to insurance companies which started their activities after the commencement of the Insurance Regulatory and Development Authority Act, 1999, meaning: all private sector insurance companies (public insurance companies should however, improve each year their performances in the same sectors); That, however not concerned by these regulations, the public sector insurance companies are the only ones to benefit from some public subsidies while extending their own activities to the same rural and social sectors DEFINITIONS The following definitions 1 apply to the two sectors aimed by the present regulations: 1 Source: IRDA 9

20 Rural sector shall mean any place as per the latest census which meets the following criteria: A population of less than five thousand; A density of population of less than four hundred per square kilometre, and More than twenty five per cent of the male working population is engaged in agricultural pursuits. The categories of workers failing under agricultural pursuits are as under: Cultivators; Agricultural labourers; Workers in livestock, forestry, fishing, hunting and plantations, orchard and allied activities. Social sector includes unorganised sector, informal sector, economically vulnerable or backward classes and other categories of persons, both in rural and urban areas: Unorganised sector includes self-employed workers such as agricultural labourers, bidi workers, brick workers, carpenters, cobblers, construction workers, handicraft artisans, handloom workers, lady tailors, leather and tannery workers, street vendors, primary milk producers, rickshaw pullers, salt growers, sericulture workers, sugarcane cutters, washerwomen, working women in hills, or such other categories Informal sector includes small scale, self-employed workers typically at a low level of organisation and technology, with the primary objective of generating employment and income, with heterogeneous activities, with the work mostly labour intensive, having often unwritten and informal employer-employee relationship; Economically vulnerable or backward classes mean persons who live below the poverty line; Other categories of persons include persons with disabilities and who may not be gainfully employed, as well as persons to tend to persons with disability; OBLIGATIONS The Insurance companies falling into the scope of the IRDA regulations, will have to comply to the following obligations: Figure N0 1: Obligations of insurers towards the rural and social sectors 2 For life insurers : 16 % of total policies within 5 years For life insurers : Cover persons within 5 years Rural Sector Social Sector 2 Source: IRDA For non-life insurers : 5 % of total gross premium income within 3 years 10 For non-life insurers : Cover persons within 5 years

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